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Courier 10-Q 2012

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 24, 2011

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to                

 

Commission file number  0-7597

 

COURIER CORPORATION

(Exact name of registrant as specified in its charter)

 

Massachusetts

 

04-2502514

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

15 Wellman Avenue, North Chelmsford, Massachusetts

 

01863

(Address of principal executive offices)

 

(Zip Code)

 

(978) 251-6000

(Registrant’s telephone number, including area code)

 

NO CHANGE

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller  reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)

 

Large accelerated filer  o

 

Accelerated filer  x

 

 

 

Non- accelerated filer  o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes  o  No  x

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at January 30, 2012

Common Stock, $1 par value

 

12,251,559 shares

 

 

 



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

 

 

 

THREE MONTHS ENDED

 

 

 

December 24,

 

December 25,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net sales

 

$

62,936

 

$

61,152

 

Cost of sales

 

47,338

 

45,847

 

 

 

 

 

 

 

Gross profit

 

15,598

 

15,305

 

 

 

 

 

 

 

Selling and administrative expenses

 

13,625

 

12,522

 

 

 

 

 

 

 

Operating income

 

1,973

 

2,783

 

 

 

 

 

 

 

Interest expense, net

 

260

 

203

 

Other income (Note H)

 

(587

)

 

 

 

 

 

 

 

Pretax income

 

2,300

 

2,580

 

 

 

 

 

 

 

Income tax provision (Note C)

 

846

 

924

 

 

 

 

 

 

 

Net income

 

$

1,454

 

$

1,656

 

 

 

 

 

 

 

Net income per share (Note E):

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

$

0.14

 

 

 

 

 

 

 

Diluted

 

$

0.12

 

$

0.14

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.21

 

$

0.21

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

December 24,

 

September 24,

 

 

 

2011

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

72

 

$

104

 

Investments

 

1,258

 

1,141

 

Accounts receivable, less allowance for uncollectible accounts of $840 at December 24, 2011 and $789 at September 24, 2011

 

32,827

 

35,320

 

Inventories (Note B)

 

41,616

 

39,353

 

Deferred income taxes

 

4,342

 

4,431

 

Other current assets

 

1,390

 

1,443

 

 

 

 

 

 

 

Total current assets

 

81,505

 

81,792

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation: $187,278 at December 24, 2011 and $182,918 at September 24, 2011

 

96,811

 

100,523

 

 

 

 

 

 

 

Goodwill (Note A)

 

16,014

 

16,025

 

 

 

 

 

 

 

Other intangibles, net (Note A)

 

2,199

 

2,302

 

 

 

 

 

 

 

Prepublication costs, net (Note A)

 

7,401

 

7,334

 

 

 

 

 

 

 

Deferred income taxes

 

3,548

 

3,772

 

 

 

 

 

 

 

Other assets

 

1,280

 

1,278

 

 

 

 

 

 

 

Total assets

 

$

208,758

 

$

213,026

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

December 24,

 

September 24,

 

 

 

2011

 

2011

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

1,821

 

$

1,804

 

Accounts payable

 

11,767

 

12,061

 

Accrued payroll

 

5,942

 

7,737

 

Accrued taxes

 

704

 

2,185

 

Other current liabilities (Note G)

 

11,145

 

7,696

 

 

 

 

 

 

 

Total current liabilities

 

31,379

 

31,483

 

 

 

 

 

 

 

Long-term debt

 

16,746

 

19,718

 

Other liabilities (Note G)

 

7,305

 

7,502

 

 

 

 

 

 

 

Total liabilities

 

55,430

 

58,703

 

 

 

 

 

 

 

Stockholders’ equity (Note F):

 

 

 

 

 

Preferred stock, $1 par value - authorized 1,000,000 shares; none issued

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 12,221,000 at December 24, 2011 and 12,237,000 at September 24, 2011

 

12,221

 

12,237

 

Additional paid-in capital

 

19,262

 

19,129

 

Retained earnings

 

122,699

 

123,811

 

Accumulated other comprehensive loss

 

(854

)

(854

)

 

 

 

 

 

 

Total stockholders’ equity

 

153,328

 

154,323

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

208,758

 

$

213,026

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 

 

 

 

THREE MONTHS ENDED

 

 

 

December 24,

 

December 25,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

Net income

 

$

1,454

 

$

1,656

 

Adjustments to reconcile net income to cash provided from operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,968

 

5,410

 

Stock-based compensation (Note F)

 

422

 

338

 

Deferred income taxes

 

313

 

(142

)

Gain on disposition of assets (Note H)

 

(587

)

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

2,493

 

2,367

 

Inventory

 

(2,263

)

(922

)

Accounts payable

 

(294

)

(4,126

)

Accrued and recoverable taxes

 

(317

)

260

 

Other elements of working capital

 

543

 

73

 

Other long-term, net

 

(445

)

(552

)

 

 

 

 

 

 

Cash provided from operating activities

 

7,287

 

4,362

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

Capital expenditures

 

(1,148

)

(3,780

)

Prepublication costs

 

(1,120

)

(1,148

)

Proceeds on disposition of assets (Note H)

 

587

 

 

Short-term investments

 

(117

)

(87

)

 

 

 

 

 

 

Cash used for investment activities

 

(1,798

)

(5,015

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Long-term debt borrowings (repayments)

 

(2,955

)

3,155

 

Cash dividends

 

(2,566

)

(2,531

)

 

 

 

 

 

 

Cash provided from (used for) financing activities

 

(5,521

)

624

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(32

)

(29

)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

104

 

107

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

72

 

$

78

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

A.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Financial Statements

 

The consolidated condensed balance sheet as of December 24, 2011, and the consolidated condensed statements of operations and statements of cash flows for the three-month periods ended December 24, 2011 and December 25, 2010 are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of such financial statements have been recorded.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) have been condensed or omitted.  The balance sheet data as of September 24, 2011 was derived from audited year-end financial statements, but does not include disclosures required by generally accepted accounting principles.  It is suggested that these interim financial statements be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended September 24, 2011.

 

Goodwill and Other Intangibles

 

The Company evaluates possible impairment to goodwill and other intangible assets annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. There were no such events or changes in circumstances in the period presented.  Goodwill was reduced by $11,000 in the first quarter of fiscal 2012 reflecting a deferred tax adjustment.  “Other intangibles” includes customer lists related to Moore-Langen Printing Company, Inc. (“Moore Langen”), which are being amortized over a 10-year period, as well as customer lists, technology, and other intangibles related to the acquisition of Highcrest Media LLC (“Highcrest Media”), which are being amortized over a 5-year period.  Amortization expense related to customer lists and technology was approximately $100,000 in the first quarter of both fiscal 2012 and 2011.

 

Fair Value Measurements

 

Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis, generally as a result of impairment charges.  Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets and goodwill and other intangible assets. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

 

Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.

 

Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

 

Fair Value of Financial Instruments

 

Financial instruments consist primarily of cash, investments in mutual funds (Level 1), accounts receivable, accounts payable, debt obligations and contingent consideration (Level 3).  At December 24, 2011 and September 24, 2011, the fair value of the Company’s financial instruments approximated their carrying values.  The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate and the Company’s current rate standing.

 

Prepublication Costs

 

Prepublication costs, associated with creating new titles in the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three to four years.

 

6



 

B.            INVENTORIES

 

Inventories are valued at the lower of cost or market.  Cost is determined using the last-in, first-out (LIFO) method for approximately 53% of the Company’s inventories at both December 24, 2011 and September 24, 2011.  Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 

 

 

(000’s Omitted)

 

 

 

December 24,
2011

 

September 24,
2011

 

Raw materials

 

$

5,912

 

$

5,574

 

Work in process

 

10,894

 

8,698

 

Finished goods

 

24,810

 

25,081

 

Total

 

$

41,616

 

$

39,353

 

 

C.            INCOME TAXES

 

The provision for income taxes differs from that computed using the statutory federal income tax rates for the following reasons:

 

 

 

(000’s Omitted)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

Federal taxes at statutory rates

 

$

805

 

35.0

%

$

903

 

35.0

%

State taxes, net of federal tax benefit

 

89

 

3.9

 

113

 

4.4

 

Federal manufacturer’s deduction

 

(46

)

(2.0

)

(88

)

(3.4

)

Other

 

(2

)

(0.1

)

(4

)

(0.2

)

Total

 

$

846

 

36.8

%

$

924

 

35.8

%

 

D.            OPERATING SEGMENTS

 

The Company has two operating segments: book manufacturing and specialty publishing. The book manufacturing segment offers a full range of services from production through storage and distribution for religious, educational and specialty trade book publishers.  The specialty publishing segment consists of Dover Publications, Inc., Federal Marketing Corporation, Inc., d/b/a Creative Homeowner, and Research & Education Association, Inc.

 

Segment performance is evaluated based on several factors, of which the primary financial measure is operating income.  Operating income is defined as gross profit (sales less cost of sales) less selling and administrative expenses, and includes severance and other restructuring costs but excludes stock-based compensation.  As such, segment performance is evaluated exclusive of interest, income taxes, stock-based compensation, intersegment profit, impairment charges, and other income.  The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment.

 

7



 

The following table provides segment information for the three-month periods ended December 24, 2011 and December 25, 2010.

 

 

 

(000’s Omitted)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

Net sales:

 

 

 

 

 

Book manufacturing

 

$

55,996

 

$

53,043

 

Specialty publishing

 

9,452

 

10,752

 

Elimination of intersegment sales

 

(2,512

)

(2,643

)

Total

 

$

62,936

 

$

61,152

 

 

 

 

 

 

 

Pretax income:

 

 

 

 

 

Book manufacturing operating income

 

$

4,206

 

$

3,841

 

Specialty publishing operating loss

 

(1,827

)

(809

)

Stock-based compensation

 

(422

)

(338

)

Elimination of intersegment profit

 

16

 

89

 

Interest expense, net

 

(260

)

(203

)

Other income

 

587

 

 

Total

 

$

2,300

 

$

2,580

 

 

E.            NET INCOME PER SHARE

 

The following is a reconciliation of the outstanding shares used in the calculation of basic and diluted net income per share.  Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company’s stock option plans.

 

 

 

(000’s Omitted)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

 

 

 

 

 

 

Weighted average shares for basic

 

12,045

 

11,961

 

Effect of potentially dilutive shares

 

58

 

27

 

Weighted average shares for diluted

 

12,103

 

11,988

 

 

F.            STOCK-BASED COMPENSATION

 

The Company records stock-based compensation expense for the cost of stock options and stock grants as well as shares issued under the Company’s 1999 Employee Stock Purchase Plan, as amended (“ESPP”). The fair value of each option awarded is calculated on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation recognized in selling and administrative expenses in the accompanying financial statements in the first quarters of fiscal 2012 and 2011 was $422,000 and $338,000, respectively.  The related tax benefit recognized in the first quarters of fiscal 2012 and 2011 was $155,000 and $121,000, respectively.  Unrecognized stock-based compensation cost at December 24, 2011 was $1.7 million, to be recognized over a weighted-average period of 1.8 years.

 

Stock Incentive Plan: In January 2011, stockholders approved the adoption of the Courier Corporation 2011 Stock Option and Incentive Plan (the “2011 Plan”).  Under the plan provisions, stock grants as well as both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees up to a total of 600,000 shares.  The 2011 Plan replaced the Company’s Amended and Restated 1993 Stock Incentive Plan (the “1993 Plan”).  No further options will be granted under the 1993 Plan.  Under the 2011 Plan, the option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant.  The Company annually issues a combination of stock options and stock grants to its key employees. Stock options and stock grants generally vest over three years.

 

8



 

The following is a summary of option activity under the 2011 Plan and the 1993 Plan in the first three months of fiscal 2012:

 

 

 

 

 

Weighted Average

 

Aggregate
Intrinsic

 

 

 

Option
Shares

 

Exercise
Price

 

Remaining
Term (yrs)

 

Value
(in 000’s)

 

Outstanding at September 24, 2011

 

587,696

 

$

19.27

 

 

 

 

 

Granted

 

1,575

 

8.47

 

 

 

 

 

Expired

 

(36,013

)

37.12

 

 

 

 

 

Forfeited

 

(62,732

)

11.91

 

 

 

 

 

Outstanding at December 24, 2011

 

490,526

 

$

18.86

 

1.6

 

$

347

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 24, 2011

 

403,387

 

$

20.70

 

1.2

 

 

Available for future grants

 

425,607

 

 

 

 

 

 

 

 

There were 171,837 non-vested stock grants outstanding at the beginning of fiscal 2012 with a weighted-average fair value of $10.32. During the first quarter of fiscal 2012, 3,900 stock grants were awarded with a weighted-average fair value of $8.47 per share, 21,797 stock grants vested with a weighted-average fair value of $10.10 per share and 19,973 grants were forfeited with a weighted-average fair value of $10.13. At December 24, 2011, there were 133,967 non-vested stock grants outstanding with a weighted-average fair value of $10.33.

 

Directors’ Stock Equity Plans: In January 2010, stockholders approved the Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”).  Under the plan provisions, stock grants as well as non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors up to a total of 300,000 shares.  The 2010 Plan replaced the previous non-employee directors’ plan, which had been adopted in 2005 (the “2005 Plan”). No further options will be granted under the 2005 Plan.  Under the 2010 Plan, the option price per share is the fair market value of stock at the time the option is granted and options have a term of five years. Stock options and stock grants generally vest over three years.

 

There was no stock option or stock grant activity under these plans in the first quarter of fiscal 2012.  At December 24, 2011, 200,771 option shares were outstanding with a weighted average exercise price of $20.20, a weighted average remaining term of 2.3 years and no aggregate intrinsic value. Of these option shares, 121,846 were exercisable with a weighted average exercise price of $24.04, and a weighted average remaining term of 1.5 years.  Under the 2010 Plan, at December 24, 2011, there were 20,552 non-vested stock grants outstanding with a weighted-average fair value of $14.31.  Directors may also elect to receive their annual retainer and committee chair fees as shares of stock in lieu of cash; no such shares were issued in the first quarter of fiscal 2012.  At December 24, 2011, there were 154,472 shares available for future grants under the 2010 Plan.

 

Employee Stock Purchase Plan: The ESPP allows eligible employees to purchase shares of Company common stock at not less than 85% of fair market value at the end of the grant period.  On January 20, 2010, stockholders approved an amendment to the ESPP increasing the shares authorized under the plan by 300,000 to an aggregate of 637,500 shares of Company common stock available for issuance under the ESPP. During the first quarter of fiscal 2012, no shares were issued under the ESPP. At December 24, 2011, there were 223,729 shares reserved for future issuances.

 

G.            RESTRUCTURING COSTS

 

In the first quarter of fiscal 2012, the Company recorded a pre-tax charge of $1.5 million for severance and post-retirement benefit costs related to cost reduction measures taken in the specialty publishing segment as well as the retirement of the Company’s Chief Operating Officer.  Approximately $0.9 million and $0.6 million of these costs were included in selling and administrative expenses in the Company’s book manufacturing segment and specialty publishing segment, respectively. At December 24, 2011, approximately $0.9 million of the restructuring payments were included in “Other current liabilities” and approximately $0.5 million, which will be paid by December 2013, were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

During fiscal 2011, the Company recorded restructuring costs of $7.7 million in its book manufacturing segment associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility in

 

9



 

March 2011 due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Remaining payments of approximately $4.6 million will be made over periods ranging from 4 years for a building lease obligation to 20 years for a liability related to a multi-employer pension plan.  At December 24, 2011, approximately $1.0 million of the restructuring payments were included in “Other current liabilities” and $3.6 million were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

The following table depicts the remaining accrual balances for these restructuring costs.

 

 

 

(000’s omitted)

 

 

 

Accrual at

 

 

 

Costs

 

Accrual at

 

 

 

September 24,

 

 

 

Paid or

 

December 24,

 

 

 

2011

 

Charges

 

Settled

 

2011

 

Employee severance, post-retirement and other benefit costs

 

$

285

 

$

1,492

 

$

(138

)

$

1,639

 

Early withdrawal from multi-employer pension plan

 

2,119

 

 

(22

)

2,097

 

Lease termination, facility closure and other costs

 

2,345

 

 

(121

)

2,224

 

Total

 

$

4,749

 

$

1,492

 

$

(281

)

$

5,960

 

 

H.            OTHER INCOME

 

The Company historically leased non-operating real property to cell phone companies for two cell-tower sites on a month-to-month basis.  In the first quarter of fiscal 2012, the Company recorded a gain of $587,000 associated with the sales and assignments of both of these interests. The Company does not have further financial obligations under these arrangements.

 

10



 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

Critical Accounting Policies and Estimates:

 

The Company’s consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles.  The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.  On an ongoing basis, management evaluates its estimates and judgments, including those related to collectibility of accounts receivable, recovery of inventories, impairment of goodwill and other intangibles, and prepublication costs.  Management bases its estimates and judgments on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results may differ from these estimates.  The significant accounting policies which management believes are most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

 

Accounts Receivable.   Management performs ongoing credit evaluations of the Company’s customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness.  Collections and payments from customers are continuously monitored.  A provision for estimated credit losses is determined based upon historical experience and any specific customer collection risks that have been identified.  If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

Inventories.   Management records reductions in the cost basis of inventory for excess and obsolete inventory based primarily upon historical and forecasted product demand.  If actual market conditions are less favorable than those projected by management, additional inventory charges may be required.

 

Goodwill and Other Intangibles.  Other intangibles include customer lists and technology, which are amortized on a straight-line basis over periods ranging from five to ten years, and an indefinite-lived trade name. The Company evaluates possible impairment of goodwill and other intangibles at the reporting unit level, which is the operating segment or one level below the operating segment, on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairment test at September 24, 2011, which resulted in no change to the nature or carrying amounts of its intangible assets in its book manufacturing segment.  At the end of the third quarter of fiscal 2011, the Company recorded a pre-tax impairment charge of $8.6 million, which represented 100% of REA’s goodwill as well as approximately $200,000 of prepublication costs related to under-performing titles.  Changes in market conditions or poor operating results could result in a decline in value of the Company’s goodwill and other intangible assets thereby potentially requiring an additional impairment charge in the future.

 

Prepublication Costs.   The Company capitalizes prepublication costs, which include the costs of acquiring rights to publish a work and costs associated with bringing a manuscript to publication such as artwork and editorial efforts. Prepublication costs are amortized on a straight-line basis over periods ranging from three to four years.  At the end of the third quarter of fiscal 2011, an impairment charge of approximately $200,000 was recorded for REA’s underperforming titles. Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand.  If actual market conditions are less favorable than those projected by management, additional amortization expense may be required.

 

11



 

Overview:

 

Courier Corporation, founded in 1824, is one of America’s leading book manufacturers and specialty publishers.  The Company has two operating segments: book manufacturing and specialty publishing.  The book manufacturing segment streamlines the process of bringing books from the point of creation to the point of use.  Based on sales, Courier is the third largest book manufacturer in the United States, offering services from prepress and production through storage and distribution, as well as state-of-the-art digital print capabilities.  The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”), and Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”).  Dover publishes over 9,000 titles in more than 30 specialty categories including children’s books, literature, art, music, crafts, mathematics, science, religion and architecture.  REA publishes test preparation and study-guide books and software for high school, college and graduate students, and professionals.  Creative Homeowner publishes books on home design, decorating, landscaping, and gardening, and sells home plans.

 

Results of Operations:

 

FINANCIAL HIGHLIGHTS

(dollars in thousands except per share amounts)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

62,936

 

$

61,152

 

3

%

Cost of sales

 

47,338

 

45,847

 

3

%

Gross profit

 

15,598

 

15,305

 

2

%

As a percentage of sales

 

24.8

%

25.0

%

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

13,625

 

12,522

 

9

%

Operating income

 

1,973

 

2,783

 

-29

%

Interest expense, net

 

260

 

203

 

28

%

Other income

 

(587

)

 

 

 

Pretax income

 

2,300

 

2,580

 

-11

%

Provision for income taxes

 

846

 

924

 

-8

%

Net income

 

$

1,454

 

$

1,656

 

-12

%

 

 

 

 

 

 

 

 

Net income per diluted share

 

$

0.12

 

$

0.14

 

-14

%

 

Revenues in the first quarter of fiscal 2012 were $62.9 million, up 3% from the same period last year. Book manufacturing segment sales increased 6% to $56.0 million with gains in each of the three key markets the segment serves. In the specialty publishing segment, revenues of $9.5 million were down 12% from last year’s first quarter, which had included nearly $0.5 million of sales to Borders Group, Inc. (“Borders”). Borders filed for bankruptcy in February 2011 and completed the liquidation of its store inventories in September, which eliminated a major outlet for books and negatively impacted sales at other booksellers during the Company’s first quarter.

 

Net income for the quarter was $1.5 million, compared to $1.7 million in the first three months of fiscal 2011. Results in the first quarter of fiscal 2012 included pre-tax restructuring costs of $1.5 million for severance and post-retirement benefits related to cost reduction measures taken in the specialty publishing segment as well as the retirement of the Company’s Chief Operating Officer.  In addition, a pre-tax gain of $0.6 million from the sale of certain non-operating assets was recorded in the first quarter of fiscal 2012.

 

12



 

Restructuring Costs

 

In the first quarter of fiscal 2012, the Company recorded a pre-tax charge of $1.5 million for severance and post-retirement benefit costs related to cost reduction measures taken in the specialty publishing segment as well as the retirement of the Company’s Chief Operating Officer.  Approximately $0.9 million and $0.6 million of these costs were included in selling and administrative expenses in the Company’s book manufacturing segment and specialty publishing segment, respectively. At December 24, 2011, approximately $0.9 million of the restructuring payments were included in “Other current liabilities” and approximately $0.5 million, which will be paid by December 2013, were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

During fiscal 2011, the Company recorded restructuring costs of $7.7 million in its book manufacturing segment associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility in March 2011 due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Restructuring costs included $2.3 million for employee severance and benefit costs, $2.1 million for an early withdrawal liability from a multi-employer pension plan, and $3.3 million for lease termination and other facility closure costs.  Remaining payments of approximately $4.6 million will be made over periods ranging from 4 years for the building lease obligation to 20 years for the liability related to the multi-employer pension plan. At December 24, 2011, approximately $1.0 million of the restructuring payments were included in “Other current liabilities” and $3.6 million were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

The following table depicts the remaining accrual balances for these restructuring costs.

 

 

 

(000’s omitted)

 

 

 

Accrual at

 

 

 

Costs

 

Accrual at

 

 

 

September 24,

 

 

 

Paid or

 

December 24,

 

 

 

2011

 

Charges

 

Settled

 

2011

 

Employee severance, post-retirement and other benefit costs

 

$

285

 

$

1,492

 

$

(138

)

$

1,639

 

Early withdrawal from multi-employer pension plan

 

2,119

 

 

(22

)

2,097

 

Lease termination, facility closure and other costs

 

2,345

 

 

(121

)

2,224

 

Total

 

$

4,749

 

$

1,492

 

$

(281

)

$

5,960

 

 

Book Manufacturing Segment

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

55,996

 

$

53,043

 

6

%

Cost of sales

 

43,509

 

41,654

 

4

%

Gross profit

 

12,487

 

11,389

 

10

%

As a percentage of sales

 

22.3

%

21.5

%

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

8,281

 

7,548

 

10

%

Operating income

 

$

4,206

 

$

3,841

 

10

%

 

Within the book manufacturing segment, the Company focuses on three key publishing markets: education, religious and specialty trade. In the first quarter of fiscal 2012, sales to the education market grew 3% to $21 million compared to the first three months of last year due to increased sales of elementary and high school textbooks as well as growing demand for customized college textbooks. This sales growth was also driven by the Company’s multi-year arrangement with its largest educational customer that was expanded and extended in December 2011. Sales to the religious market were up 9% to $16 million reflecting the benefit associated with the growth incentive arrangement with the Company’s largest religious customer as well as the timing of orders from this customer.  Sales to the specialty trade

 

13



 

market were also up 9% to $17 million, reflecting an increase in digital print orders as well as sales of four-color trade books.

 

Cost of sales in the book manufacturing segment increased $1.9 million to $43.5 million in the first three months of fiscal 2012 compared to the same period last year reflecting the growth in sales. Gross profit for the first quarter increased $1.1 million to $12.5 million compared with the corresponding period in fiscal 2011 and, as a percentage of sales, improved to 22.3% from 21.5%, despite a highly competitive pricing environment. This improvement reflects a favorable sales mix, improvements in operating efficiencies from recent technology investments, and savings from the closing of a redundant one-color manufacturing plant in March 2011.

 

Selling and administrative expenses for the segment increased $0.7 million in the first quarter of fiscal 2012 compared to the first three months of last year, attributable to $0.9 million of severance and post-retirement benefit costs in the first quarter of fiscal 2012.

 

First quarter operating income in the book manufacturing segment grew 10% to $4.2 million compared with the first quarter of fiscal 2011 reflecting increased sales and a favorable sales mix, improvements in operating efficiencies, and savings from closing the Company’s one-color Stoughton, Massachusetts facility last March.

 

Specialty Publishing Segment

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 

 

 

Three Months Ended

 

 

 

December 24,
2011

 

December 25,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

Net sales

 

$

9,452

 

$

10,752

 

-12

%

Cost of sales

 

6,357

 

6,926

 

-8

%

Gross profit

 

3,095

 

3,826

 

-19

%

As a percentage of sales

 

32.7

%

35.6

%

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

4,922

 

4,635

 

6

%

Operating loss

 

$

(1,827

)

$

(809

)

 

 

 

The Company’s specialty publishing segment reported revenues of $9.5 million, down 12% from last year’s first quarter. Sales at Dover were down 6% to $7.7 million and sales at REA decreased 28% to $1.0 million in the first three months of fiscal 2012 compared to the prior year period. These declines were largely due to the Borders bankruptcy and liquidation, which eliminated an important retail channel and has temporarily flooded the book market with low-priced inventory. At Creative Homeowner, first-quarter sales were down by 38% to $0.8 million compared to the same period last year as demand for books on home improvement continues to be depressed amid the weak housing market as well as the availability of information online. During the first three months of fiscal 2012, the specialty publishing segment experienced a 10% growth in sales to online retailers, both on a domestic and international basis.

 

Cost of sales in this segment declined 8% to $6.4 million in the first three months of fiscal 2011 compared to the prior year quarter, reflecting the lower sales volume. Gross profit decreased 19% to $3.1 million compared to last year’s first quarter and, as a percentage of sales, decreased to 32.7% from 35.6%, again reflecting the impact of the decline in sales.

 

Selling and administrative expenses for the segment increased $0.3 million in the first quarter of fiscal 2012 compared to the first three months of last year, attributable to $0.6 million of severance and post-retirement benefit costs recorded in the quarter, which more than offset the benefit of cost reduction measures.

 

The specialty publishing segment’s operating loss was $1.8 million in the first quarter of fiscal 2012 compared to $0.8 million in the corresponding period last year, with the increased loss due to the decline in sales as well as the $0.6 million of severance and post-retirement benefit costs.

 

14



 

Total Consolidated Company

 

Interest expense, net of interest income, was $260,000 in the first quarter of fiscal 2012 compared to $203,000 of net interest expense in the first three months of last year. Average debt under the revolving credit facility in the first quarter of fiscal 2012 was approximately $17.4 million at an average annual interest rate of 1.0%, generating interest expense of approximately $43,000. Average debt under the revolving credit facility in the first quarter of last year was approximately $20.7 million at an average annual interest rate of 0.8%, generating interest expense of approximately $39,000. At December 24, 2011, $4.4 million was borrowed under the Company’s term loan with related interest expense of $37,000 in the first quarter of fiscal 2012 compared to $53,000 of interest expense in the same period last year. In addition, approximately $40,000 of interest expense was amortized in the first three months of this fiscal year associated with the restructuring costs incurred in fiscal 2011. Interest expense also includes commitment fees and other costs associated with maintaining the Company’s $100 million revolving credit facility. Interest capitalized in the first quarter of last year was approximately $26,000; no interest was capitalized the first quarter of fiscal 2012.

 

In the first quarter of fiscal 2012, the Company recorded other income of $587,000 from gains associated with the sale of its interests in non-operating real property relating to cell towers.

 

The Company’s effective tax rate for the first quarter of fiscal 2012 was 36.8% compared to 35.8% for the same period last year reflecting a decrease in the benefit from the Federal manufacturer’s deduction.

 

For purposes of computing net income per diluted share, weighted average shares outstanding increased by approximately 115,000 shares from last year’s first quarter, reflecting shares issued under the Company’s stock plans.

 

Liquidity and Capital Resources:

 

During the first three months of fiscal 2012, operations provided $7.3 million of cash, compared to $4.4 million in the first quarter of last year. Net income was $1.5 million and depreciation and amortization were $6.0 million.

 

Investment activities in the first quarter of fiscal 2012 used $1.8 million of cash. Capital expenditures were $1.1 million.  For the entire fiscal year, capital expenditures are expected to be approximately $10 to $12 million, compared to $16 million for fiscal 2011.  Prepublication costs were $1.1 million in the first three months of fiscal 2012, comparable to the first quarter of last year.  For the full fiscal year, prepublication costs are projected to be approximately $5 million with the $1 million increase over fiscal 2011 attributable to accelerated investment in digital offerings.

 

Financing activities for the first three months of fiscal 2012 used approximately $5.5 million of cash.  Cash dividends of $2.6 million were paid and borrowings decreased by $3.0 million during the first quarter of fiscal 2012.  At December 24, 2011, borrowings under a term loan used to finance the purchase of the Company’s new digital print assets were $4.4 million, with $1.8 million at a fixed annual interest rate of 3.9% and $2.6 million at a fixed annual interest rate of 3.6%.  The Company also has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%.  At December 24, 2011, the Company had $14.2 million in borrowings under this facility at an interest rate of 0.8%.  The revolving credit facility, which matures in March 2013, contains restrictive covenants including provisions relating to the maintenance of working capital, the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all such covenants at December 24, 2011.  The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by the Company for both its long-term and short-term financing needs.  The Company believes that its cash on hand, cash from operations and the available credit facility will be sufficient to meet its cash requirements through 2012.

 

15



 

The following table summarizes the Company’s contractual obligations and commitments at December 24, 2011 to make future payments as well as its existing commercial commitments.

 

 

 

 

 

(000’s Omitted)

 

 

 

 

 

Payments due by period (1)

 

 

 

 

 

Less than

 

1 to 3

 

3 to 5

 

More than

 

 

 

Total

 

1 Year

 

Years

 

Years

 

5 Years

 

Contractual Payments:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt (2)

 

$

18,567

 

$

1,821

 

$

16,746

 

 

 

Operating leases (3)

 

7,843

 

1,289

 

2,088

 

1,495

 

2,971

 

Purchase obligations (4)

 

1,090

 

1,090

 

 

 

 

Other liabilities (5)

 

9,758

 

2,453

 

3,151

 

1,075

 

3,079

 

Total

 

$

37,258

 

$

6,653

 

$

21,985

 

$

2,570

 

$

6,050

 

 


(1) Amounts do not include interest expense.

(2) Includes the Company’s revolving credit facility, which has a maturity date of March 2013.

(3) Represents amounts at September 24, 2011, except for the Stoughton, Massachusetts building lease obligation, which was included in “Other liabilities” at both September 24, 2011 and December 24, 2011.

(4) Represents capital commitments.

(5) Includes approximately $4.1 million of restructuring costs, in addition to a related current liability of $1.9 million.

 

Forward-Looking Information:

 

This Quarterly Report on Form 10-Q includes forward-looking statements.  Statements that describe future expectations, plans or strategies are considered “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements.  Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated.  Some of the factors that could affect actual results are discussed in Item 1A of this Form 10-Q and include, among others, changes in customers’ demand for the Company’s products, including seasonal changes in customer orders and shifting orders to lower cost regions, changes in market growth rates, changes in raw material costs and availability, pricing actions by competitors and other competitive pressures in the markets in which the Company competes, consolidation among customers and competitors, insolvency of key customers or vendors, changes in the Company’s labor relations, success in the execution of acquisitions and the performance and integration of acquired businesses including carrying value of intangible assets, restructuring and impairment charges required under generally accepted accounting principles, changes in operating expenses including medical and energy costs, changes in technology including migration from paper-based books to digital, difficulties in the start up of new equipment or information technology systems, changes in copyright laws, changes in consumer product safety regulations, changes in environmental regulations, changes in tax regulations, changes in the Company’s effective income tax rate and general changes in economic conditions, including currency fluctuations, changes in interest rates, changes in consumer confidence, changes in the housing market, and tightness in the credit markets.  Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate.  The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

 

16



 

Item 3.                   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes from the information concerning the Company’s “Quantitative and Qualitative Disclosures About Market Risk” as previously reported in the Company’s Annual Report on Form 10-K for the year ended September 24, 2011.

 

Item 4.                   CONTROLS AND PROCEDURES

 

(a)       Evaluation of disclosure controls and procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)       Changes in internal controls over financial reporting

 

There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

17



 

PART II.  OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

 

 

 

 

 

None.

 

 

 

Item 1A.

 

Risk Factors

 

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks.  Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control.  We discuss below the risks that we believe are material.  You should carefully consider all of these factors.  For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement contained in this report, see Forward-Looking Information in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Industry competition and consolidation may increase pricing pressures and adversely impact our margins or result in a loss of customers.

 

The book industry is extremely competitive.  In the book manufacturing segment, consolidation over the past few years of both customers and competitors within the markets in which the Company competes has caused downward pricing pressures.  In addition, excess capacity and competition from printing companies in lower cost countries may increase competitive pricing pressures.  Furthermore, some of our competitors have greater sales, assets and financial resources than us, particularly those in foreign countries, who may derive significant advantages from local governmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressures could affect prices or customers’ demand for our products, impacting our profit margins and/or resulting in a loss of customers and market share.

 

A reduction in orders or pricing from, or the loss of, any of our significant customers may adversely impact our operating results.

 

We derived approximately 53% and 47% of our fiscal 2011 and 2010 revenues, respectively, from two major customers.  We expect similar concentrations in fiscal 2012.  We do business with these customers on a purchase order basis and they are not bound to purchase at particular volume levels.  As a result, any of these customers could determine to reduce their order volume with us.  A significant reduction in order volumes from, or the loss of, either of these customers could have a material adverse effect on our results of operations and financial condition.

 

Because a significant portion of publishing sales are made to or through retailers and distributors, the insolvency of any of these parties could have a material impact on the Company’s financial results.

 

In our specialty publishing segment, sales to retailers and distributors are highly concentrated on a small group, which previously included Borders Group, Inc. (“Borders”). During fiscal 2011, we recorded a bad debt expense of $700,000 related to the Borders’ bankruptcy and liquidation. Sales to Borders for our publishing segment in fiscal 2011 declined $3.3 million compared to fiscal 2010. In addition, the Company experienced a 9% reduction in sales in the trade market of its book manufacturing segment in fiscal 2011 compared with the prior year.

 

As a result of the impact of the Borders situation, in the third quarter of fiscal 2011, the Company recorded a pre-tax impairment charge of $8.6 million, representing 100% of REA’s goodwill as well as approximately $200,000 for prepublication costs related to underperforming titles.

 

Similarly, any bankruptcy, liquidation, insolvency or other failure of another major retailer or distributor could also have a material impact on the Company.

 

Electronic delivery of content may adversely affect our business.

 

Electronic delivery of content offers an alternative to the traditional delivery through print and there are many companies that have greater assets and financial resources that are investing in eBooks and

 

18



 

electronic textbooks.  Widespread consumer acceptance of electronic delivery of books is uncertain, as is the extent to which consumers are willing to replace print materials with electronic materials.  To the extent that our customers’ acceptance of these electronic alternatives should continue to grow, demand for and/or pricing of our printed products may be adversely affected. To the extent that we do not successfully adapt to provide our content in electronic form, demand for our content may suffer, and to the extent that consumers substitute free information online for our content and/or do not demand our electronic offerings, sales may suffer.

 

A failure to successfully adapt to changing book sales channels may have an adverse impact on our business.

 

Over the last several years, the “bricks & mortar” bookstore channel has experienced a significant contraction, including the bankruptcy of Borders Group, Inc. and Nebraska Book Co., the closure of many independent bookstores, and the reduction in inventory and shelf space for books in other national chains.  There is no guarantee that we will be able to penetrate alternative channels and address the challenges in these channels, including creating price competitive products for these markets and accurately predicting the volume of returns.

 

Declines in general economic conditions may adversely impact our business.

 

Economic conditions have the potential to impact our financial results significantly.  Within the book manufacturing and specialty publishing segments, we may be adversely affected by the current worldwide economic downturn, including as a result of changes in government, business and consumer spending.  Examples of how our financial results may be impacted include:

 

·                  Fluctuations in federal or state government spending on education, including a reduction in tax revenues due to the current economic environment, could lead to a corresponding decrease in the demand for educational materials, which are produced in our book manufacturing segment and comprise a portion of our publishing products.

 

·                  Consumer demand for books can be impacted by reductions in disposable income when costs such as electricity and gasoline reduce discretionary spending.

 

·                  Tightness in credit markets may result in customers delaying orders to reduce inventory levels and may impact their ability to pay their debts as they become due and may disrupt supplies from vendors, and may result in customers or vendors becoming insolvent.

 

·                  The insolvency of key vendors may have an adverse effect on our operations.

 

·                  Changes in the housing market may impact the sale of Creative Homeowner’s products.

 

·                  Reduced fundraising by religious customers may decrease their order levels.

 

·                  A slowdown in book purchases may result in retailers returning an unusually large number of books to publishers to reduce their inventories.

 

A failure to keep pace with rapid industrial and technological change may have an adverse impact on our business.

 

The printing industry is in a period of rapid technological evolution.  Our future financial performance will depend, in part, upon the ability to anticipate and adapt to rapid industrial and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to such technological changes, we may lose customers and may not be able to maintain our competitive position. In addition, we may encounter difficulties in the implementation and start-up of new equipment and technology.

 

We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain a competitive position or what expenditures will be required to develop and provide these products and services.  We cannot assure investors that one or more of these factors will not vary unpredictably, which could have a material adverse effect on us. In addition, we cannot assure investors, even if these factors turn out as we anticipate, that we will be able to implement our strategy or that the strategy will be successful in this rapidly evolving market.

 

19



 

Our operating results are unpredictable and fluctuate significantly, which may adversely affect our stock price.

 

Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include:

 

·                  the timing and size of the orders for our books;

 

·                  the availability of markets for sales or distribution by our major customers;

 

·                  the lengthy and unpredictable sales cycles associated with sales of textbooks to the elementary and high school market;

 

·                  our customers’ willingness and success in shifting orders from the peak textbook season to the off-peak season to even out our manufacturing load over the year;

 

·                  fluctuations in the currency market may make manufacturing in the United States more or less attractive and make equipment more or less expensive for us to purchase;

 

·                  issues that might arise from the integration of acquired businesses, including their inability to achieve expected results;

 

·                  the funding status of multi-employer union pension plans; and

 

·                  tightness in credit markets affecting the availability of capital for ourselves, our vendors, and/or our customers.

 

As a result of these and other factors, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance. In addition, the factors noted above may make it difficult for us to forecast and provide in a timely manner public guidance (including updates to prior guidance) related to our projected financial performance. Furthermore, it is possible that in future quarters our operating results could fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

 

Our financial results could be negatively impacted by impairments of goodwill or other intangible assets, or other long-lived assets.

 

We perform an annual assessment for impairment of goodwill and other intangible assets, as well as other long-lived assets, at the end of our fiscal year or whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value, including a downturn in the market value of the Company’s stock.  A downward revision in the fair value of one of our acquired businesses could result in impairments of goodwill and non-cash charges.  Any impairment charge could have a significant negative effect on our reported results of operations.  For example, at the end of the third quarter of fiscal 2011, the Company determined that the fair value of REA was below its carrying value and a pre-tax impairment charge of $8.6 million was recorded, which represented 100% of REA’s goodwill as well as approximately $200,000 for prepublication costs related to underperforming titles and long-lived assets.

 

Fluctuations in the cost and availability of paper and other raw materials may cause disruption and impact margins.

 

Purchases of paper and other raw materials represent a large portion of our costs.  In our book manufacturing segment, paper is normally supplied by our customers at their expense or price increases are passed through to our customers.  In our specialty publishing segment, cost increases have generally been passed on to customers through higher prices or we have substituted a less expensive grade of paper.  However, if we are unable to continue to pass on these increases or substitute a less expensive grade of paper, our margins and profits could be adversely affected.

 

Availability of paper is important to both our book manufacturing and specialty publishing segments.  Although we generally have not experienced difficulty in obtaining adequate supplies of paper, unexpected changes in the paper markets could result in a shortage of supply.  If this were to occur in the future, it could cause disruption to the business or increase paper costs, adversely impacting either or both net sales or profits.

 

20



 

Fluctuations in the costs and availability of other raw materials could adversely affect operating costs or customer demand and thereby negatively impact our operating results, financial condition or cash flows.

 

In addition, fluctuations in the markets for paper and raw materials may adversely affect the market for our waste byproducts, including recycled paper, and used plates, and therefore adversely affect our income from such sales.

 

Energy costs and availability may negatively impact our financial results.

 

Energy costs are incurred directly to run production equipment and facilities and indirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment, increases to these direct and indirect energy related costs might not be able to be passed through to customers through price increases or mitigated through other means.  In such instances, increased energy costs could adversely impact operating costs or customer demand.  In addition, interruption in the availability of energy could disrupt operations, adversely impacting operating results.

 

Inadequate intellectual property protection for our publications could negatively impact our financial results.

 

Certain of our publications are protected by copyright, primarily held in the Company’s name.  Such copyrights protect our exclusive right to publish the work in the United States and in many other countries for specified periods.  Our ability to continue to achieve anticipated results depends in part on our ability to defend our intellectual property against infringement.  Our operating results may be adversely affected by inadequate legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are of works in the public domain, for which there is nearly no intellectual property protection.  Our operating results may be adversely affected by the increased availability of such works elsewhere, including on the Internet, either for free or for a lower price.

 

A failure to maintain or improve our operating efficiencies could adversely impact our profitability.

 

Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability.  Although we have been able to expand our capacity, improve our productivity and reduce costs in the past, there is no assurance that we will be able to do so in the future.  In addition, reducing operating costs in the future may require significant initial costs to reduce headcount, close or consolidate operations, or upgrade equipment and technology.

 

Changes in postal rates and postal regulations may adversely impact our business.

 

Postal costs are a significant component of our direct marketing cost structure and postal rate changes can influence the number of catalogs that we may mail.  In addition, increased postal rates can impact the cost of delivering our products to customers.  The occurrence of either of these events could adversely affect consumer demand and our results of operations.

 

Our facilities are subject to stringent environmental laws and regulations, which may subject us to liability or increase our costs.

 

We use various materials in our operations that contain substances considered hazardous or toxic under environmental laws.  In addition, our operations are subject to federal, state, and local environmental laws relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination.  Permits are required for the operation of certain of our businesses and these permits are subject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”), and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at off-site disposal locations or at our facilities.  Future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on our financial position and results of operations.

 

21



 

A failure to successfully integrate acquired businesses may have a material adverse effect on our business or operations.

 

Over the past several years, we have completed several acquisitions, and may continue to make acquisitions in the future.  We believe that these acquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner.  The challenges involved in successfully integrating acquisitions include:

 

·                  we may find that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or that economic conditions have changed, all of which may result in a future impairment charge;

 

·                  we may have difficulty integrating the operations and personnel of the acquired business and may have difficulty retaining the customers and/or the key personnel of the acquired business;

 

·                  we may have difficulty incorporating and integrating acquired technologies into our business;

 

·                  our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing diverse locations;

 

·                  we may have difficulty maintaining uniform standards, controls, procedures and policies across locations;

 

·                  an acquisition may result in litigation from terminated employees of the acquired business or third parties; and

 

·                  we may experience significant problems or liabilities associated with technology and legal contingencies of the acquired business.

 

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significant diversion of management’s time from our business as well as significant out-of-pocket costs. Tightness in credit markets may also affect our ability to consummate such acquisitions.

 

The consideration that we pay in connection with an acquisition could affect our financial results.  If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash and credit facilities to consummate such acquisitions.  To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, our existing stockholders may experience dilution in their share ownership in our company and their earnings per share may decrease.  In addition, acquisitions may result in the incurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.  Any of these factors may materially and adversely affect our business and operations.

 

A failure to hire and train key executives and other qualified employees could adversely affect our business.

 

Our success depends, in part, on our ability to continue to retain our executive officers and key management personnel.  Our business strategy also depends on our ability to attract, develop, motivate and retain employees who have relevant experience in the printing and publishing industries.  There can be no assurance that we can continue to attract and retain the necessary talented employees, including executive officers and other key members of management and, if we fail to do so, it could adversely affect our business.

 

A lack of skilled employees to manufacture our products may adversely affect our business.

 

If we experience problems hiring and retaining skilled employees, our business may be negatively affected.  The timely manufacture and delivery of our products requires an adequate supply of skilled employees, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions.  Accordingly, our ability to increase sales, productivity and net earnings could be impacted by our ability to employ the skilled employees necessary to meet our requirements. 

 

22



 

Although our book manufacturing locations are geographically dispersed, individual locations may encounter strong competition with other manufacturers for skilled employees.  There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities.  In addition, unions represent certain groups of employees at one of our locations, and periodically, contracts with those unions come up for renewal.  The outcome of those negotiations could have an adverse affect on our operations at that location.  Also, changes in federal and/or state laws may facilitate the organization of unions at locations that do not currently have unions, which could have an adverse affect on our operations.

 

We are subject to various laws and regulations that may require significant expenditures.

 

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Consumer Product Safety Act, the rules and regulations of the Consumer Products Safety Commission as well as laws and regulations relating to personal information.  We may be required to make significant expenditures to comply with such governmental laws and regulations and any amendments thereto. Complying with existing or future laws or regulations may materially limit our business and increase our costs.  Failure to comply with such laws may expose us to potential liability and have a material adverse effect on our results of operations.

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

 

None.

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

 

 

 

 

None.

 

 

 

Item 4.

 

Removed and Reserved

 

 

 

Item 5.

 

Other Information

 

 

 

 

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

 

 

Item 6.

 

Exhibits

 

Exhibit No.

 

Description

 

 

 

31.1*

 

Certification of Chief Executive Officer

 

 

 

31.2*

 

Certification of Chief Financial Officer

 

 

 

32.1**

 

Certification of Chief Executive Officer

 

 

 

32.2**

 

Certification of Chief Financial Officer

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*   Filed herewith.

** Furnished herewith.

 

23



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

COURIER CORPORATION

(Registrant)

 

 

February 1, 2012

 

By:

/s/James F. Conway III

Date

 

 

James F. Conway III

 

 

 

Chairman, President and

 

 

 

Chief Executive Officer

 

 

 

 

 

 

February 1, 2012

 

By:

/s/Peter M. Folger

Date

 

 

Peter M. Folger

 

 

 

Senior Vice President and

 

 

 

Chief Financial Officer

 

 

 

 

 

 

February 1, 2012

 

By:

/s/Kathleen M. Leon

Date

 

 

Kathleen M. Leon

 

 

 

Vice President and

 

 

 

Controller

 

24



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

31.1*

 

Certification of Chief Executive Officer

 

 

 

31.2*

 

Certification of Chief Financial Officer

 

 

 

32.1**

 

Certification of Chief Executive Officer

 

 

 

32.2**

 

Certification of Chief Financial Officer

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*   Filed herewith.

** Furnished herewith.

 

25


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